Middle Income Trap

Do countries get “trapped” between poverty and prosperity?

There are two kinds of “trap” countries can fall into while they are trying to improve the level of development. Even though they follow the successful steps of their forerunners, poor countries cannot succeed because of the “poverty trap” and other countries progress really fast but then they get stuck, which is also called the “middle-income trap”. This trap was named by Indermit Gill and Homi Kharas who think this will affect countries like China, Malaysia and Mexico. Even though they escaped poverty they are still not rich countries. The theory suggests that because rich countries have the technology and poor countries have cheap labor, the middle income countries cannot compete with these. However this does not have to be true and countries can still compete on any level of wages or prosperity. Also there is evidence that middle-income countries grow faster than richer or poorer economies. So there is no clear evidence that the middle-income even exists. 

 http://www.economist.com/news/finance-and-economics/21571863-do-countries-get-trapped-between-poverty-and-prosperity-middle-income-claptrap